Tweet me!- Moody's has stated US, UK, Germany, & France, are at risk of
credit downgrades from AAA (dollar rose on this news) - All 4 countries estimate debt costs of 80% of annual GDP
- Most financial historians look at the SPDRs as first ETF,
introduced in 1993 to track S&P 500 - ETFs nearly doubled in AUM over the past year to $1 trillion,
Mutual Funds have total of $18.7 trillion, but some mutual funds have
started to structure ETFs - ETFs cross various asset classes (FX, Commodities, Bonds),
leverage (1x, 2x, inverse) and offer better fees than traditional mutual
funds - ETFs have developed into an incredibly large and important asset
class for the retail investor - Of course, there is the risk of slippage and tracking error in
ETFs, particularly the leveraged ones which seem to suffer from time
decay. This is Reggie's comment, and not necessarily that of the author
of the article.
- The $787American Recovery and Reinvestment Act has propped up
temporary jobs to generate a "pseudo-recovery" [Tell me about it] - Obama has talked down risky loans, while back handedly pushing
banks to take "third and forth looks" at potential debtors, meanwhile,
FHA will take 3.5% down payments - FHA loans continue to increase in default rate, as do readjusted
HAMP (Home Affordable Modification Program) loans - Prime loans have had terrible default rates due to the way prime
is accessed, primes can include adjustable rate mortgages, low down
payments, and "debt disguise mechanisms"
- Under new chapter 11 plan, "LAMCO" would manage all of Lehman's
assets outside of its core operations that were liquidated in bankruptcy
court - Secured, administrative and priority creditors would be paid in
full under the proposed plan, while general unsecured claims, direct
intercompany claims and guarantee claims would in part be satisfied by
some "pro rata" cash distributions
- Organization for Economic Co-operation and Development estimates
that more than 30 percent of Greece's GDP is untaxed [yet Greece
believes they can fix this in one year, see "Greek
Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on
Fire! ] - US Manufacturing produced $1.4 trillion in 2007, even after losing
1/3 of workforce since 1998 (Greece's economy is based on tourism &
agriculture) - Flight from USD for debt reason does not make sense to author
since Euro nation debt loads are similar or worse, and Japanese debt is
much greater than the US
- Most business leaders are preparing for minimal economic growth,
and some are even preparing for worse - US consumption was 20% of global GDP, on the contrary, Chinese
consumption would need to rise by 30% to offset a decline of 5% in US
spending [see Can
China Control the “Side-Effects” of its Stimulus-Led Growth? Let's
Look at the Facts - Signs
of a China Credit and Real Asset Bubble Are Now Unmistakable! - What
Are the Odds That China Will Follow 1920's US and 1980's Japan? - Some
Light Shown on My Developing China Thesis ]
- Recessions combine business outlook into combination of short term
survival & long term jockeying for industry power - The article as a whole addresses creative destruction theory and
how the effects are amplified during recessions
IMF Working Paper @ http://www.imf.org/
- Current US fiscal policy is becoming a long term liability,
forecasting is very hard with large deviations between projections and
outcomes (projections are too optimistic) [This is not just a US
problem. The Eurozone members are champions at this, see
Once You Catch a Few EU Countries "Stretching the Truth", Why Should
You Trust the Rest?] - While bad real GDP forecasts have contributed to error in fiscal
forecasts, regression analysis of GDP, CPI, and fiscal policy finds only
a 12% correlation - Near-Medium term economic outlook is neutral/skeptical,
potentially downplaying the importance of reducing deficit for that same
term - The primary balance surplus exceeded expectations throughout most
of the 1990's, however fell short throughout most of the following
decade - According to IMF models, fiscal prudence would stabilize debt/GDP
at 68%, if policy reaction is slow, reaching 80% is more realistic (IMF
models are much less optimistic than OMB models) - There is a wide range of uncertainty about US fiscal policy, but
it is clear that without adjusting the primary balance the US will see
debt levels north of the 77% projection by 2020 - Incredible/Impossible balancing act of steady stimulus vs. debt
reduction is almost underway, but a intermediate term fiscal course
correction is necessary
Imes Discussion Paper @ http://www.imes.boj.or.jp
- Textbook economic theory regarding sticky prices and low
nominal inflation may not hold when multiple nations are fighting a
liquidity trap - In a global liquidity trap, the country with the biggest gov't
expenditures will weaken its currency and worsen its terms of trade - Under normalized conditions (normal central bank policies), fiscal
multipliers are kept under 1.0, but when interest rates push the
zero boundary, fiscal spillover and government spending increases, terms
of trade weaken and global trade breaks down [Think US-China trade
beef, Germany & practically the rest of Europe. See Mainland Chinese Express
Regret, Anger at Google Move]
- Fiscal multipliers >1 usually result in gov't expenditures
achieving employment growth, but negative results if elasticity of
consumption is <1
Albert Edwards/ZH Report @
http://www.zerohedge.com
- Private sectors continue to deleverage, governments continue to
lever up at all levels (perhaps the only reason financials appear to be
deleveraging is because gov'ts continue to soak up their bad debts?) - Bank lending continues to decline, deleveraging is not nearly
finished, contradicts mainstream idea of debt based, leveraged recovery - Possibility for global debt-deflation crisis continues to grow,
Edwards & Grice predict the printing presses will heat up
(hyperdeflationary default followed by hyperinflationary printing to pay
debts due)
ECB Article @ http://www.ecb.int/
- ECB forecasts minimal growth (0.4%-1.2% GDP) this year &
moderate growth (<2.5%) next year, inflation expectations remain low - Unsure what the post-crisis "normal" will be, or conditions when
ECB ends non-standard monetary policy operations - ECB recognizes individual fiscal prolificacy and calls for tighter
fiscal policy to avoid sovereign debt crisis (a little late for this
isn't it???) - Stark concludes with typical calls for transparency, when the Fed
calls for transparency it comes off as a back handed joke and I'm going
to assume this is not much different. See Smoking
Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer
Beware!
ING Forecast@ http://www.ing.be
- With weak consumption/confidence, and stagnating labor demand, GDP
growth forecasts continue to look sluggish - Changes in the discount rate are barely a measure of tightening,
as only $112 billion was borrowed on average per week at the height
(fall of Lehman) and now is at a mere $14 billion/avg per week - Greece continues to haunt markets by keeping safe haven fixed
income at lower yields - Similar consumption/confidence issues are "plaguing" the Eurozone,
growth outlook still weak, UK is slightly more optimistic but fiscal
concerns are starting to hold weight - Employment conditions in Japan appear to be easing, but deflation
continues to dominate - PBoC continues to have issues with balancing inflation and
stimulus led asset prices - Funds and banks are waiting out potential RMB appreciation
- Dollar continues to benefit from negative sovereign credit outlook
in the Eurozone, particularly UK & Greece, no mention of heavy
hitters Spain & Italy
Flash Economics: Spain@ http://cib.natixis.com
- Spain is currently seeing -3.7% GDP growth, 19% unemployment,
annual deficits of ~11% debt/GDP - Spanish "growth" was credit driven, bursting of construction
bubble was incredibly deflationary for income and resulted in defaults - Hypothetically, a government default would bankrupt the banks
because the banks are absorbing most of the fiscal financing as private
lending has sunk - Government estimates to reduce deficit to 3% annual GDP by 2012
are IMPOSSIBLE without economic growth - Subscribers, see Spanish
Banking Macro Discussion Note
Flash Economics: Greece v. Germany@ http://cib.natixis.com
- Greek gov't expenditures have outpaced Germany 10x, as percentage
of GDP, gov't payrolls are twice as high - Germany has not exasperated the Greek trading surplus as much as
some analysts state, Germany has lower costs of production and still
exports manufactured goods to Greece - 85% of all external financing of Greece's current account deficit
has been financed by the Eurozone, not just Germany - German banks hold $67.5 billion worth of Greek financial assets
- See The
Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western
European Countries and, - Financial
Contagion vs. Economic Contagion: Does the Market Underestimate the
Effects of the Latter? - "Greek
Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on
Fire! - Germany
Finally Comes Out and Says, "We're Not Touching Greece" - Well, Sort
of... -
The
Greece and the Greek Banks Get the Word "First" Etched on the Side of
Their Domino
BBVA Weekly Article @ http://serviciodeestudios.bbva.com
- EU industrial output grew 1.7% MoM due to Germany, France, and
Italy - German exports continued to increase, thanks to a weaker Euro,
even as French confidence fell and Italian GDP was revised negative - Lighter trade continues to hold back the UK, private demand in
Spain continues to be incredibly weak - Trichet continues to highlight potential sovereign debt crisis
while maintaining very low rates to support stimulus measures
State Sreet G7 Weekly @ http://www.ssga.com/
- US retail sales for February were upbeat thanks to substantial
downward adjustments from December and January - US current account deficit continues to grow while trade
deficit also widens on "recovery" signs - Canadian exports, employment, capacity utilization, and housing
data continue to look optimistic, chance for rate increases looks
good at first glance, but the BoC rarely acts before the Fed - In the UK, industrial output continues to disappoint, but retail
sales numbers continue to improve - German, French, and Italian output continue to rise slightly, but
are still unimpressive, graphs are generating an "L shaped recession" - Japanese data continues to act erratically as the BoJ attempts
to fight deflation for the seemingly 1,000th time, but
manufacturers are seeing orders rise in potential signs of export growth - Japanese corporate prices are rising due to oil prices,
deflation still reigns supreme - Australian home loan approvals have fallen by 7.9%, this is
the 4th consecutive decline and could be a leading indicator
for a decline in construction activity - Chinese M2 grew 25% YoY, Indian production is up 16% YoY (India
raised rates, also something to follow), and Brazil posted its first
annual GDP gain (4.3%) in a year - US household wealth is up $5 trillion over the past 3 quarters,
but $12 trillion remains in losses
FT Alphaville Article @
http://ftalphaville.ft.com/
- Santander hemorrhaged cash (and equivalents) at a loss of €10.892
billion over the past year, meanwhile, competitor BBVA posted cash gains
of €1.69 billion and operating cash flow of positive €2.567 - Boosts in operating cash flows at both BBVA and Santander
potentially line up with alleged assistance from the ECB, which a
Santander spokesperson took the time to go after the blog post, stating
if Santander wanted more cash it could get it from the market, not
resort to the ECB - To follow up on the previous bullet, does Santander really want to
try and raise funds from the market? A terrible bond auction for
Santander would raise its risk profile as well as Spanish sovereigns,
which would help unwind the "extend and pretend" policies currently used - See The
Spanish Inquisition is About to Begin... and subscriber download Spanish
Banking Macro Discussion Note
